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August, 2007

How to Sell to Custom Homebuilders

Learn what custom builders want most from their dealers—after they’ve nailed down the best price.

By Craig A. Shutt

As the new-home market has shifted into a buyer’s market, sellers (i.e., builders) have sharpened their pencils, worked to create efficiency without sacrificing quality, and started better marketing their homebuilding capabilities. Custom homebuilders in particular must ensure that they stand out and provide a competitive advantage. To do that, these custom builders are asking for help from their building material dealers in a variety of ways.

"The market is not like it used to be, where you could put out a for-sale sign and someone would snatch it up,” says Gary Young, purchasing manager for Simonini Builders Inc. in Charlotte, N.C. "Those days are gone, at least for awhile. We are striving to cut our direct costs to give our clients a lower cost per sq. ft. while maintaining our quality.”

And what’s the universal best way in which dealers can help builders achieve that goal? Reduce prices, of course.

"If I look at a new supplier, I want to know that I will get better pricing on what I already receive, at least,” says Young. "But I’m open to options on how I will get that.” With some existing suppliers, Young has worked out rebates based on reaching certain volumes of purchases on an annual basis. "There are all kinds of things that can be done to keep that monthly invoice the same but still help me bring down my total costs.”

Others agree that pricing must be addressed, but say that there are many ways to look at pricing and the costs hidden within a relationship.

"Pricing is No. 1, with a qualification,” says Paul Demars, CEO of The Great Room Co. in Portsmouth, N.H. "Price alone is not where’s it’s at. We also want to know what else we will get and how it will help us.” Young agrees. "Price is key, but it has to be provided along with services. It all goes hand in hand.”

One place where pricing and service work together is through providing takeoffs on builders’ plans, notes Demars. "Takeoffs are a huge part of what we get from our lumberyard,” he says. The company uses its historic estimates to create an initial estimate for a similar new home, but then it sends the plan to its building-material dealer as a PDF digital file for a complete takeoff. "That service is No. 2, right behind getting a good price,” he says. "It provides a double-check of our historic estimate. The more information we provide them, the closer we are to an accurate price.”

The notion that there are ways to cut costs beyond demanding rock-bottom prices is not lost on builders. Paul Magleby, president of Magleby Cos. in Lindon, Utah, boils it down to the key relationship: "Price is a consideration, but getting products for free doesn’t help me if I don’t get them on time.”

Efficient Delivery

Indeed, deliveries—on schedule, with all products set in the proper location—are a key element. "The bane of my existence is when the lumberyard supplier has to make three or four trips to deliver products,” says John Lovett, president of River City Builders in New Braunfels, Texas. "If we need 30 doors and I only get 24, I can’t do the baseboard and trim.”

Even worse than a failure to execute is a failure to communicate. "If [a dealer] says they’ll be here but only half show up, and I’ve pulled my trim crew from another job to do that work, I get stupid mad. If the supplier tells me it’s not coming, it doesn’t make me happy, but I can plan for it. We need communication.”

Simonini’s Young agrees. "Delivering as scheduled ensures our own schedules don’t stumble, and that’s critical.” Not only does it keep everyone productive, it speeds up construction. That in turn not only satisfies customers but reduces costs. "The longer it takes to build a home, the more money it costs due to carrying costs on loans. The quicker a home is finished, the better for everyone.”

Knowing how and when each builder wants deliveries is critical, notes Demars. "We need steady deliveries, not one big delivery. We only want the products on site that we need then, to help with logistics and to cut theft. Deliveries are an important element of good service, and we need a systematic approach to providing them. We want to buy products as one package, but it’s not realistic to expect us to have them delivered in one package.”

Being able to buy in complete packages of products, even though the products aren’t delivered that way, is a key ingredient in what builders look for from a supplier. "We are packaging more components, including trusses and I-joists, because it gives us some negotiating power,” says Young. "If I use four or five suppliers for products, they’re not as interested in helping us.” Some custom builders prefer to buy piece-meal, he notes, in an effort to gain the best price on an ala carte basis.

"We like to work with one supplier,” agrees Demars. "It gets us the best deal in price and service. We want to get the best pricing we can without having to negotiate every load of lumber.” Knowing how builders want the products delivered also is critical, he notes. "Boom trucks save us labor moving steel joists, and being able to have shingles delivered to the roof saves, too. Our supplier having that kind of apparatus is important for us.”

One Key Contact

Builders also want to have one key contact who they can call for any concerns or questions. "Before we’ll do business with a company, I need to know the one person I can call who will respond,” says Young. That means one contact for all three of the company’s markets, not one for each, he notes. "If we have a problem with a product, I won’t call the local product rep, I’ll call our contact, and he’ll take care of the problem or get back to me quickly.”

Lovett agrees that having one contact is critical, but he tends to work with the inside sales person most. "The outside sales person calls on a lot of people, and sometimes you can’t get him,” he explains. "The guy at the counter knows the answers. I make friends with him, and I get answers quickly.”

Demars takes the same approach, wanting a key contact but knowing who else to call when necessary. "We build a relationship with one guy, but we work with many, depending on what needs to be done,” he says. "Sales will initiate the order, but then we talk with the desk to facilitate changes to loads or delivery times. It’s important that we have many contacts so someone can be called directly and [we] get an immediate response. And we don’t expect to be treated like just another caller. They are our representative, and we should stand out to them.”

Many lumberyards miss out on business because they don’t have enough contacts beyond the counter, warns Rosie Romero. Now a partner in ROTH Productions in Scottsdale, Ariz., a marketing and media consulting company for the building industry, Romero formerly owned his own custom homebuilding company. "Ninety percent of contact comes over the counter, and as a result, yards don’t know the key details about their custom-builder clients,” he says. "If the outside sales person is out at the site, he can understand the builder’s processes and ensure orders are met and new needs are anticipated as the projects progress.”

After-Sale Service Is Critical

Likewise, being available to handle problems that arise with products is critical, builders say. "The thing I want most is service and support,” says Magleby. "I don’t want them to drop off products and then they’re gone because they’re too busy selling the next job. Any vendor should take care of his customers as their utmost priority. Products that have created a problem need to be serviced and resolved.”

Technology products, including lighting, are high on his list of high-maintenance items, Magleby says. Each new homeowner receives a binder with contacts for handling any product problems that arise. "Tradespeople are not always responsive and don’t have the staff available to answer questions. They’re too busy trying to take the next job without looking back at the job they already sold—and that previous client is far more valuable to them than finding a new one, due to referrals and repeat business. If someone doesn’t service their product well, they’re shooting themselves in the foot. Next time, I’ll say we’ll use anyone but him, and they lose future jobs.”

A key ingredient is acknowledging the concern, even if it can’t be resolved immediately, he notes. "People who call for service need it now, so the supplier has to at least acknowledge that the problem will be addressed. I deal in a very high-end market, and if I have an unhappy customer, it reflects on me and I have to deal with it. Service after the sale is my No. 1 point with suppliers.”

Showrooms Aid Final Sale

Offering showrooms for key products, especially large, high-ticket items such as windows, kitchen and bath items, or decks, aids a builder in ensuring the customer decides on the best product and understands what he’s getting. That’s particularly true for custom builders, who don’t offer model homes. "Windows are an especially important area for us because custom homes typically have a larger percentage of space devoted to them, and they’re a big-ticket item,” says Demars. "They’re also more sophisticated today.”

Working with a dealer who has a close relationship with his own suppliers creates benefits, he adds. "We often have the window sales rep get more heavily involved than with other products, and they work with us and the lumber dealer.”

Working closely with local wholesalers can aid building-material dealers, suggests Romero. He recently visited a Canadian yard where the owner created a series of vignettes around the store’s perimeter from local wholesalers. By combining a variety of options in one location, the home buyer saved time shopping, the homebuilder gained more control over the process by knowing where the selections were made. The lumberyard leases the space to the wholesalers and maintains it, making its store the focal point. "It created a shopping experience for all of the suppliers,” Romero says.

Taking on some of these products, rather than working with local suppliers, can be a daunting challenge for a lumberyard, he notes. "The mid-range custom builders, those building 15 to 20 homes per year, aren’t thinking that they can get all their custom products—plumbing, lighting, kitchen cabinets—at one place. They will go to many wholesalers to get those products, and they want the lumberyard to give them their sticks and bricks as cost-efficiently as possible. Trying to become a big-box store and supply everything will be difficult. But by serving as a conduit to those other wholesalers, you can tap into their expertise without having to handle those products.”

New Product Expertise Helps

Providing information on new products also is a critical service that custom homebuilders require from dealers, they say. "We need a person available who can research new products when we learn about them,” says Demars. "Customers with Internet access ask questions all the time. Some products are good, and some are bad, and clients want to know about them. We need our supplier to keep us posted on what new items are coming out and what will be needed to install them, because new products often require new approaches.” Stucco, for instance, has to be applied with a vapor barrier over wood sheathing in his New England markets. "We are motivated by our own customers to learn more, and we look to our suppliers to provide us with recommendations.”

River City’s Lovett talks with other builders about what they’ve been using that’s been successful, using contacts from his local builders’ association. Simonini’s Young will ask his building-material supplier about products he isn’t carrying. "If you have a good relationship, you can ask them about the pros and cons of a new product and get a good response,” says Young. "We tend to stick with the tried and true, but we have to look at new items all the time, particularly as so many new ‘green’ products are coming out now. But it’s hard to knock a major product out of our lineup and take over because reliability is such a key factor.”

Online Access Grows

Some dealers are making the shopping experience easier for builders and homebuyers by providing more online services, including full-line catalogs and ordering services. Builders appreciate these options, even if many of them, like The Great Room Co., use it primarily for communication rather than ordering. His company does track its job-costing and invoicing by computer, Demars notes, and its supplier tracks invoices by job number to provide separate statements for each project. "That helps us create future estimates when we do homes that are similar to past projects.”

Adds Magleby, "Everything is going paperless with our systems.” The company has begun ordering from online sites, and it definitely checks availability and pricing. "Some systems are more sophisticated than others, but all of our suppliers are making improvements, and they should. It saves us time because we don’t need to talk to them during business hours to find out what we need; we can do it at our convenience and then place the order.”

River City has begun doing online ordering of parts and materials, notes Lovett, and it also is allowing customers to use suppliers’ online catalogs if they’re comfortable doing that. "It depends on the customer,” he explains. "If they’re high-energy and used to the Internet, I can send them to the lumberyard and let them shop out of the catalog. But if they need to see it and touch it, I’ll send them to the big showrooms.”

Dealers who aren’t at least exploring online ordering and invoicing are missing a chance to provide better service, says Romero. For forward-thinking dealers, such programs also can provide that No. 1 incentive to partner—better pricing.

Setting up a system in which the builder pays each invoice electronically on the day it’s submitted saves time and credit-card processing fees, while providing the dealer with immediate payment.

"What advantages would a dealer give to a builder to receive a payment that fast and effortlessly?” Romero asks. Such a system could be worth 2% or more of the costs the dealer passes on. "If he gives back 1-11⁄2% to the builder, it’s saving the lumberyard money while giving the builder a better deal. They’d be crazy not to do it.”

New Suppliers Reviewed

Even more important, such a service being offered by a competitor can make a builder consider changing suppliers. "We owe it to our clients to look at new suppliers and new products to see if we can be doing better,” says Young. "If they can provide better pricing over the long haul or a clearly better product, we will consider it.”

But making a change is not done lightly or quickly, he stresses. The company demands pricing information and uses the product on a trial basis first. It also visits the supplier’s facility and asks for references from other users. "We have to do our homework,” says Young. "We have to be sure that our supplier’s price isn’t just being undercut to get the business and then it will go back up in three months. These offers to change come along all the time, to be honest, but when we check them out, 99.9% of the time, the companies aren’t who you want to be dealing with.”

Lovett agrees. "We know the first sale will always be best because everyone wants to be a hero at the beginning,” he says. "But I’m not impressed by promises. I’d rather stick with [people] I know. Past experience is worth a lot. Sometimes, over time, you find that changing vendors wasn’t worth the hassle.”

Being hasty with a change can lead to repenting that decision at leisure, agrees Young. "If you make a change and it doesn’t work out, and you return to your original supplier after three months, you’ve now got some real walls to overcome. You have to be very careful when you do something like that.”

Feedback Is Critical

For that reason, Romero suggests that dealers sit down with their best customers in a group—or several groups based on regional competition—to encourage more feedback and create the best service model. "Ask them what you need to do to be their No. 1 favorite material dealer, and what they want that they aren’t getting from a big-box store,” he says. After a few such meetings, dealers no doubt will hear the same suggestions coming out.

"The roundtables will develop teamwork tight enough so that when a problem arises, you can rely on your relationship to work it out and not have to fall back on having a relationship based on the hard, cold, fast, lowest price.”

Building-material dealers have a strong position, he notes, because they’ve usually been in markets for a long time. "They have a long-standing community reputation, and they aren’t going anywhere,” he says. "They should take advantage of that position.”

Demars does. "To become one of our suppliers requires having all the factors in place. It would mean better pricing and proving they can perform over the long haul and doing considerably better at it than we’re doing already. We’ve set up a long-term relationship, and it’s really worked out well over time, and that means a lot.” Young agrees that the relationship is a vital, if intangible, part of the equation.

"Some suppliers say we’re pickier than others, while others say that others are pickier,” he says. "The lumberyard has to understand our needs. There is a learning curve for both of us about how each of us does business. But if we work to understand each other, we both can reap the rewards.”

CRAIG A. SHUTT, senior contributing editor of the magazine, has nearly 30 years experience covering the LBM industry.

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